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project is launched to stipulate future carbon emissions trading price,
quantity, and time. There are two pricing modes, namely, fixed pricing
and floating pricing. Fixed pricing means that the carbon emissions
right has a fixed price for the future closing which does not fluctuate
with the market. The floating pricing consists of the base price and
the EU reference price and is based on the lowest floor price, plus a
floating price pegged to the quota price. As far as the CDM projects
China participates in are concerned, most of the signed CER forward
contracts stipulate a locked price. Although this avoids the risk of price
fluctuations, it loses out on shared profits when prices go up in the
international market.
Table 2.11 provides a brief description of the major international
options and futures products. Carbon futures means buying futures
contracts to replace carbon credits (such as EUA) on the spot market
so as to hedge EUA price against inflation to achieve the purpose of
avoiding and transferring price risks. Therefore, carbon futures have
the function of price discovery. In the global carbon market, carbon
spot trading accounts for a very small proportion, the futures represent
the mainstream. In the carbon futures trading, management fees,
transaction fees, and clearing fees are generally charged.
Table 2.11 Major International Options and Futures Products and Their Features
Products Characteristic Description
ECX CFI The ICE Futures Europe ECX Futures Contracts (ICE ECX Futures) are designed to
facilitate the trading, risk management, hedging and physical delivery of emission
allowances in the EU ETS.
EUA Futures This product was uniformly formulated by the European Energy Exchange that
carries out centralized business. It is the standardized contract that stipulates that
in the future, at a set time and place, the quality and amount of the carbon emission
index shall be handed over. The price shall be reached through in-house open price
bidding by the Exchange.
CER Futures Can avoid the CER price substantial fluctuation risk.
EUA Options Entrust the holder/buyer with rights to the selected performance of this contract
within the shared option by or before the due date, and buyer/seller with the
obligation of fulfilling the contract.
CER Options Achieve call option or put option value through CDM.
Carbon options are the carbon-derivative trading tools developed on
the basis of carbon futures. Take CER options as an example; when the
CER prices are expected to go up, the CER sellers will buy call options
to hedge against the risk of future price increases. If future CER prices
go down, CER sellers will gain benefits by exercising the call option.
110 Low Carbon Development in China and India
quantity, and time. There are two pricing modes, namely, fixed pricing
and floating pricing. Fixed pricing means that the carbon emissions
right has a fixed price for the future closing which does not fluctuate
with the market. The floating pricing consists of the base price and
the EU reference price and is based on the lowest floor price, plus a
floating price pegged to the quota price. As far as the CDM projects
China participates in are concerned, most of the signed CER forward
contracts stipulate a locked price. Although this avoids the risk of price
fluctuations, it loses out on shared profits when prices go up in the
international market.
Table 2.11 provides a brief description of the major international
options and futures products. Carbon futures means buying futures
contracts to replace carbon credits (such as EUA) on the spot market
so as to hedge EUA price against inflation to achieve the purpose of
avoiding and transferring price risks. Therefore, carbon futures have
the function of price discovery. In the global carbon market, carbon
spot trading accounts for a very small proportion, the futures represent
the mainstream. In the carbon futures trading, management fees,
transaction fees, and clearing fees are generally charged.
Table 2.11 Major International Options and Futures Products and Their Features
Products Characteristic Description
ECX CFI The ICE Futures Europe ECX Futures Contracts (ICE ECX Futures) are designed to
facilitate the trading, risk management, hedging and physical delivery of emission
allowances in the EU ETS.
EUA Futures This product was uniformly formulated by the European Energy Exchange that
carries out centralized business. It is the standardized contract that stipulates that
in the future, at a set time and place, the quality and amount of the carbon emission
index shall be handed over. The price shall be reached through in-house open price
bidding by the Exchange.
CER Futures Can avoid the CER price substantial fluctuation risk.
EUA Options Entrust the holder/buyer with rights to the selected performance of this contract
within the shared option by or before the due date, and buyer/seller with the
obligation of fulfilling the contract.
CER Options Achieve call option or put option value through CDM.
Carbon options are the carbon-derivative trading tools developed on
the basis of carbon futures. Take CER options as an example; when the
CER prices are expected to go up, the CER sellers will buy call options
to hedge against the risk of future price increases. If future CER prices
go down, CER sellers will gain benefits by exercising the call option.
110 Low Carbon Development in China and India
